Written by:
Jerry Seelig
Seelig+Cussigh HCO LLC; Los Angeles

Richard Cussigh
Seelig+Cussigh HCO LLC; Chicago


About the Authors

Jerry Seelig and Richard Cussigh are founding members of Seelig+Cussigh HCO LLC. Seelig has worked extensively in a wide variety of roles in health care and biotechnology; Cussigh was founder and CEO of Transolutions Inc., one of the largest medical transcription companies in the United States.

There is an increasing debate among bankruptcy attorneys and judges on the value, cost-effectiveness, merits and potential savings, not to mention the legal necessity, of involving a patient care ombudsman (ombudsman or PCO) in health care facility-related bankruptcy cases.1 The appointment of an ombudsman in order to comply with §333 of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) has been the topic of three insightful articles on these pages.2 On the other hand, there has been relatively little discussion of the need to adhere to The Health Insurance Portability and Accountability Act of 1996 (HIPAA)3 and other federal and state regulations that ensure the privacy, security and accessibility of the patient’s medical record.

This article will discuss two significant factors that should be included in the decision to appoint a PCO: the security, maintenance and access to patient records and the vulnerability of patients in the bankruptcy proceedings of smaller medical facilities. This article will also examine the serious need to both protect patient information created in all types
of health care settings and ensure continuity of care offered by that provider. Furthermore, the general content of a patient’s medical record reinforces the need for compliance with HIPAA and other security and privacy regulations.

Which Health Care Entities Are Filing for Bankruptcy?

The appointment of a PCO in hospital and nursing home bankruptcy cases is becoming more common. Roberta A.
and Paul W. Bridenhagen reported that 70 percent of the 47 longterm care bankruptcy and 48 percent
of the 33 hospital bankruptcy cases they surveyed in 2008 involved a PCO. However, when considering a wider variety of 188 other, usually smaller, health care-related entities, the appointment of a PCO drops to 7.4 percent.4 These “other health care entities” provide billions of dollars of health care services and are an integral part of a patient care. They include LASIK centers, weight loss surgery/support programs, cosmetics/plastic surgery/dermatology, imaging centers (facilities using X-Rays, M.R.I. machines, etc.), physical and behavioral rehabilitation programs, and a wide variety of health care services provided in a doctor’s office, specialty clinic or surgical center. All these services provide important care to patients, and any interruption in these services, or restricted access to the records related to this care, can have a serious impact on the safety and continuous treatment of patients.

Multiple economic pressures are forcing more of these health care entities to file for either chapter 11 or 7 protection. Therefore, two vital questions must be asked in each of these bankruptcies:

• Are patient records and information secure?
• Will patients have continuity of care either with the debtor, or at an alternate facility?

What HIPAA Protects, and Why That Protected Information Is Needed

Before appointing an ombudsman, there are many factors a court must consider: (1) What is in the medical record?
(2) What is its purpose? (3) What are the various regulations, including the oftencited HIPAA that impact the maintenance of and access to these records?

  1. Patient records contain a vast amount of personal and sensitive information on an individual’s health, history and financial matters. They have detailed patient demographic information including name, Social Security number, date of birth, attending physician and other identifiers that ensure accurate identification and matching of the patient file with the appropriate patient. The substance of a medical record, depending on its type, includes information deemed by the medical professional to be important to the care and treatment of the patient. This includes, but is not limited to, family and patient health history, health complaints, diagnosis, test results, procedures, outcomes, prescriptions and treatment course. Finally, these records include an individual’s unique financial information such as home address, insurance identifiers, bank and credit card information
  2. Patient records must be available at the time of treatment and include information from as many of the patient’s providers as possible. All the clinical information contained in a chart assists in the diagnosis, treatment and ongoing care of a patient. This information must be accurate and able to be communicated among multiple providers and caregivers. The file is also used as a basis for service charges, for reimbursement and litigation support. These records are also critical to the operation of every health care organization, as they document treatment and services to, and the potential of future revenues from, the patient. Medical records should be a unique and highly protected asset of the debtor.
  3. Given the sensitive nature of these medical records, and their importance to patient care, various state and federal laws seek to protect the privacy and patient access to this information. Most readers have probably heard of, but perhaps not reviewed, HIPAA. It protects all medical records and other individually identifiable health information used or disclosed by a covered entity in any form, whether on paper, electronic or oral.5

Under HIPAA, patients have significant rights to understand and control how their health information is used. Health care providers and health plans are required to give patients a clear written explanation of how they will use and disclose a patient’s health information. Patients have rights to review and get copies of their records and to request clarification and amendments to specific entries into their medical record. Doctors, nurses and all other health care providers are required to obtain patient consent before sharing their information, whether for treatment, payment or administrative purposes. Importantly, the value of the bankruptcy estate is also at risk if these issues are not addressed, confirmed and adequately protected.

Critical Patient Information Must Be Protected and Provided

The ombudsman must therefore provide an unbiased:

  • examination of the bankruptcy’s impact on the debtor’s ability to continue to meet the health care needs of its patients.
  • review of threats to the security of patient information.
  • assessment of the patient’s ability to gain access to health care information created at and maintained by the debtor. (That access extends to being able to convey patient information to another care facility if/when the debtor is no longer meeting the patient’s health care needs.)
  • strategy to eliminate or minimize adverse impacts on the patients and debtor.

A key determinant in whether or not to appoint an ombudsman is whether or not there is a need to secure, protect and make available protected health information to patients and/or caregivers. Importantly, access to these records will often extend beyond the transfer of assets to a panel trustee or a sale, thereby creating the need to appoint a PCO in chapter
7 cases.6 Those mandated to appoint the ombudsman, as well as those parties in interest who choose to oppose, should recognize that failing to secure these records could lead to a critical breach in patient information security and impede the continuity of quality care

Real Time and Independent Information

Monitoring patient care demands real-time and independent information. Surveying debtor pleadings and court findings, there is a disproportional degree of reliance on the debtor’s safety or compliance officer, on state licensing and reporting agencies, or on the oft-cited Joint Committee on Accreditation of Healthcare Organizations (JCAHO) system of accreditation of hospitals, physicians’ offices and specialty providers.

Most debtors, even in this “other health care entities” category, employ safety and compliance staff. Yet the U.S. Trustee and the bankruptcy judges have found these quality assurors are not the independent voices needed to ensure patient safety and provide the necessary information to approve budgets that affect the health care provided by the debtor. Real-time information may not be provided to the court because underfunded and understaffed state licensing and regulatory bodies often do not make it to the debtor in a timely manner, slowing intervention until after the problem has become critical.7

Reports by JCAHO, a trade group created by health care providers, frequently focus on violations that do not affect care and can miss many critical problems that do. Finally, JCAHO reviews are conducted randomly. Thus, the review may not occur until long after or long before the conditions that lead to the bankruptcy filing become acute. As cited below, in some cases the enormity of the violations are such that JCAHO reports can be a determinant in appointing an ombudsman. Yet in all cases, JCAHO alone cannot provide sufficient timely tools to monitor and manage care.8

Snooping Scandals and Other Worse Threats to the Estate

Bankruptcy can bring job and income loss. It can also generate anger toward an owner or manager, potentially creating a heightened temptation for employees within the health care facility to take advantage of the value of patient information to which they have access. In April 2007, a former administrative assistant at UCLA Medical System was indicted for selling patient information to The National Enquirer. The Los Angeles Times revealed that within the UCLA Medical System, 68 current and former staff, including nine doctors, illegally accessed patient records. All have been implicated in what has been labeled the “Celebrities Snooping Scandal.”9

Another such case, reported by The New York Times, involved a former employee of New York-Presbyterian/Weill Cornell Medical Center accessing almost 50,000 medical records and selling approximately 2,000.10 Access to patient records creates the potential of theft, leading to the sale of private health information related to a public figure, the theft and misuse of credit card information and to the use of patient information for fraudulent Medicare/Medicaid billings. Additionally, the theft and loss of laptops and portable memory devices has led to the loss of millions of patient records and to the breaching of mandated privacy and security protection while opening up the risk for further damages to patients and health care providers.11

Two Cases that Illustrate the Benefits of Appointing an Ombudsman

Two recent cases illustrate how vital the appointment of an ombudsman can be for the protection of patient records and the patients’ continuation of care after the bankruptcy filing of a care provider. In the first case, the debtor, Fairfax MRI Center,12 performed MRI and X-ray procedures up to the date of filing for bankruptcy. On the filing date, the equipment leaseholder disabled the MRI equipment and the sole technician operating both the MRI and X-ray equipment left the debtor. Access to patient records created prior to the filing had to be maintained and ensured, but any risks related to patient safety ceased after the last procedure.

The U.S. Trustee appointed an ombudsman. Within one week of that appointment, the PCO and his court-appointed consultant confirmed that patients and referring physicians had received all reports related to procedures performed prior to the filing, that the records related to these procedures had been properly protected and that the procedures had ceased at filing, so there were no ongoing patient safety issues. The debtor in the second case, In re Lawenda,13 had operated a successful optometry practice for more than 30 years, performing eye exams and dispensing eyeglasses, lenses and prescription medication. A community property dispute arising out of divorce proceedings led to the filing of a chapter 7. Believing that a consulting agreement would be established, the debtor operated his practice for 50 days after the filing.

When the parties could not complete the consulting agreement, the debtor terminated his staff with one day’s notice and then abandoned the practice. The debtor’s only notice to his patients was a sign on the door stating: “The practice is closed due to family crisis,” with the trustee’s attorney’s name and phone number

In this case, an ombudsman was appointed 35 days after the debtor abandoned his practice. After reviewing the files and office situation, the PCO and his court consultant determined that the best way to access patient records and to assess the status of patient care was to hire the licensed optician who had served as the practice’s office manager for more than 25 years.

The sudden abandonment of the practice left paid and unpaid orders for corrective lenses unfilled. Three answering machines on premises with a total capacity of 145 messages were clogged to capacity a week after the abandonment. The messages on these machines were never reviewed, and patients were unable to leave a message, and those finding a closed office were denied access to medical care, finished orders or their medical records. Most importantly, patients who might require immediate medical attention were denied a clinical diagnosis and response that could convey the importance of seeking medical care in a timely manner.

The actions of the PCO enabled patients to pick up their unclaimed orders, allowed patients to access their medical records and secured the protection of these records. Within four days of accessing the premises, the PCO provided verbal and written reports documenting the patient care problems to the U.S. Trustee and to all parties of interest. These actions provided sufficient relief from patient-care issues, and the sale of the debtor’s assets was completed as planned within the week. The buyer then took immediate action to restore patient care and the availability of patient information.

Shaping the Ombudsman Evolution

The ombudsman’s role is evolving. In many health care settings, it is underutilized, overlooked or not employed. The functions and responsibilities championed by the ombudsman must get greater emphasis so that all patients caught up in a bankruptcy have access to medical records and continuing quality care. Often an appointment also preserves the value of the debtor’s assets, including, but not limited to, the patients’ records.

What can the ombudsman do to restore access to medical information and care? Regarding information, there is substantial support in knowledgeable circles for the ombudsman, using its appointed access to these confidential records, to restore immediate access.

As Nancy A. Peterman found in her review of §333, intervening to restore patient care may be limited to reporting to the court and then requesting further action. Yet there will be other cases, such as Lawenda, where the serious patient issue is the need for immediate access to a health care practitioner. In those cases, the ombudsman, U.S. Trustee and the court must move quickly to determine what efforts are required to restore patient care.

An ombudsman works best and most effectively for all parties when arrangements for incorporating ombudsman’s services are considered early on. Additionally, an independent third party can often break an impasse and/or protect the value of wasting estate assets

A caregiver will desperately need a medical record, which is unavailable atthe debtor health care provider; angry employees could vent their anger and perhaps meet their financial needs by publicizing someone’s medical information; a laptop or flash memory drive not secured by the debtor or trustee will be lost. Preventing or minimizing the adverse impact of these occurrences is a key factor in the appointment decision.

Reprinted with permission from the ABI Journal, Vol. XXVII, No. 8, October 2008.
The American Bankruptcy Institute is a multi-disciplinary, nonpartisan organization devoted to bankruptcy issues. ABI has more than 12,500 members, representing all facets of the insolvency field. For more information, visit ABI World at www.abiworld.org.


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1 The authors acknowledge and thank the devoted professionals at the Office of the U.S. Trustee who have offered insights into key cases nationwide, and legal colleagues Jeff Sumpter, David Hoffman and Tom Stromberg, as well as health care providers Julia Alexander MD, Patricia Wiles and Scott Simon. Editors Don Ruhter and Alex Seelig were invaluable.

2 The reasons for appointing or choosing to not appoint a PCO have been well documented in the pages of the ABI Journal: Nancy A. Peterman, Sherri Morissette and Suzanne Koenig, “The Patient Care Ombudsman’s New Reality: Top 10 Issues,” ABI Journal, Vol. XXVI, No.6, p. 22, 66-68, July/August 2007); Harold L. Kaplan and Samuel R. Maizel, “Evolving Standards for Appointment of a Patient Care Ombudsman: §333 in ‘Operation,’” XXVII ABI Journal 2, 40-41, 61-63 March 2008); Roberta A. DeAngelis and Paul W. Bridenhagen, “U.S. Trustee Program Administers Patient Care Ombudsman Requirements,” XXVII ABI Journal 5, 14, 45-46 June 2008.

3 Federal Register; Vol 67, No. 157, Aug. 14, 2002, Rules and Regulations, Dept. of Health and Human Services, Office of the Secretary, 45 CFR Parts 160 and 164.

4 Id. DeAngelis, et al.

5 HIPAA documents and materials can be found at www.hhs.gov/ocr/hipaa/assist.html.

6 PCO consultants were employed In re Dan Ann Ugaretti, Case No. 06-106094, U.S. Bankruptcy Court for the Northern District of Illinois, a chapter 7 case, and in In re Kenneth Lawenda, O.D. Case No. 08-10796, U. S. Bankruptcy Court for the Central District of California, another chapter 7 case in which an order was entered to approve the employment application, stating that “this order [is] not intended to serve as precedent, but reflects the unique circumstances of this case.”

7 In re Brotman Medical Center Inc., Case No. 07-19705, U.S. Bankruptcy Court for the Central District of California, the judge appointed a PCO after expressing concerns as to the independence of the debtor quality assurance staff while indicating the need to have in the PCO a resource of a medically trained person to assist her in her review of pleadings. Recently, the U.S. Trustee sought and was able to appoint a PCO in In re Sequoia Community Health Foundation Inc., Case No. 08-13653, U.S. Bankruptcy Court for the Eastern District of California. She stated in her motion: “Circumstances bring into question numerous issues relating to the Debtor’s operations, including the quality of patient health care and the maintenance and disposition of patient medical records.”

8 In In re Tyrone Hospital, Case No. 06-70759, and Tyrone Medical Associates, Case No. 06-70760 U.S. Bankruptcy Court Western District of Pennsylvania, the debtor objected to the appointment of a PCO, citing JCAHO and other debtor resources and state regulatory bodies, and arguing that the PCO would be a drain on the resources of the debtors and another level of bureaucracy. The U.S. Trustee cited more than 500 JCAHO violations, multiple malpractice suits and other support for her concerns about patient care and HIPAA compliance.

9 Los Angeles Times, April 20, 2008: “Celebrity-snooping ex UCLA Medical Center staffer is indicted” (www.latimes.com/business/ careers/work/la-me-ucla30apr30,0,243905.print.story), and May 12, 2008: “More tied to UCLA snooping” (www.latimes.com/news/local/la-meucla13-2008may13,0,4592208,print.story), both articles by Charles Ornstein.

10 New York Times, April 13, 2008 (www.nytimes.com2008/04/13/nyregion/13arraign.html?_r=1&oref=slogin).

11 The Computer World Web site has a section devoted to health care security issues, which details many of these incidents. An example involving stolen health insurance information is www.computerworld.com/action/article.do?command-printArticle&articleid=9092978. The Privacy Rights Web site is a comprehensive collection of computer-related violations and devotes one section to health care, www.privacyrights.org.

12 In re Fairfax MRI Ctr., Case No. 07-1792 U. S. Bankruptcy Court for the Central District of California.

13 In re Lawenda, Case No. 08-10796, U.S. Bankruptcy Court for the Central District of California.